Fallout: New Vegas lead Josh Sawyer has answered another question via his Formspring page. This one has to do with NPC dialogue. Check it out:

Q: Do you have any particular approaches to NPC dialogue/chatter to help with immersivity and without them coming off as useless bots, taking up space, and never adding much lore or relevant information?

A: I am a believer in what Obsidian calls "barkstrings". Generic, rank-and-file characters in the world typically do not have full dialogue trees. Instead, they have a large list of reactive one-off lines that they will say either in passing or when you interact with them. As long as barkstrings react to things in a meaningful fashion, it's usually more satisfying than drilling generic characters for generic information through a dialogue tree.

Background characters should also be engaged in meaningful action. A world where people endlessly, randomly mill about feels like a world without purpose. Communities should have a focus and characters within communities should have roles that they fill.